Ruble Gains With Equities as Crimea Sanctions Impact Seen Muted

Russian equities have the cheapest valuations among 21 developing countries monitored by Bloomberg, with shares on the Micex trading at 4.5 times projected 12-month earnings, compared with a multiple of 10 for the MSCI Emerging Markets Index. Photographer: Andrey Rudakov/Bloomberg

March 17 (Bloomberg) -- The ruble snapped a six-day losing
streak and Russian stocks rallied from a four-year low on
speculation sanctions imposed on the country over Crimea will
have a limited impact. Russian equities in New York advanced.

The Micex Index closed up 3.7 percent at 1,283.70. The
Market Vectors Russia ETF, the biggest U.S. exchange-traded fund
that holds Russian shares, rose 2.5 percent to $22.36 by 3:10
p.m. in New York, while the RTS Index surged 4.9 percent, the
most among global indexes. The ruble rebounded from a record
low, climbing 0.6 percent to 42.7821 against Bank Rossii’s
target basket of dollars and euros by 6 p.m. in Moscow, when the
central bank stops its market operation.

The European Union and the U.S. announced sanctions against
Russian officials as after more than 96 percent of voters in the
Black Sea peninsula backed joining Russia in yesterday’s
referendum. Ukraine, the U.S. and the EU said they don’t
recognize the vote. Russia’s monthly tax period, when local
companies sell foreign currency to pay duties to the state
budget, started today, helping boost appetite for the ruble.

“The consequences are way smaller than initially
thought,” Kirill Yankovskiy, a director for equity sales at
UralSib Securities in London, said by e-mail. “Chances are
these aren’t all the sanctions, but for now we’re likely to
price in a further bit of an improvement.”

‘Compromise Option’

Russia’s foreign ministry proposed establishing a contact
group to encourage Ukrainians to draw up a new constitution on a
federal basis to guarantee the rights of minorities, according
to a statement on its website.

EU leaders may add names to their blacklist and consider a
wider range of economic sanctions at a summit on March 20-21.
The EU today imposed sanctions on 21 individuals, including
travel-visa bans and asset freezes, while the U.S. applied
sanctions on seven officials.

“A federal split may become a compromise option, suiting
all sides, and there will be no harsh sanctions as a result,”
Dmitry Dorofeev, a money manager and strategist at BCS Financial
Group in Moscow, said in e-mailed comments.

Russian President Vladimir Putin will address lawmakers
tomorrow. The Kremlin has deployed about 60,000 troops along the
Ukrainian border, the government in Kiev said.

The ruble gained 0.7 percent versus the dollar to 36.3325
and added 0.6 percent against the euro to 50.6380. The Russian
currency has slumped 9.4 percent against the dollar this year,
the worst performer after Argentina’s peso among 24 emerging-market currencies tracked by Bloomberg.

The yield on government ruble bonds due February 2027
declined 35 basis points, or 0.35 percentage point, to 9.36
percent after reaching a record high last week.

Target Corridor

The ruble earlier traded outside the last target corridor
set by the central bank, meaning the regulator may be selling
unlimited amounts of foreign currency in interventions to smooth
out excess volatility. Bank Rossii raised the corridor by 15
kopeks on March 14, shifting it 5 kopeks after every $1.5
billion sold, it said today.

Russian stocks have slumped 11 percent this month as the
Ukraine crisis intensified following Putin’s decision to send
troops into Crimea.

“We’re seeing short-covering in the market as the worst-case scenario of Western sanctions hasn’t played out,”
Stanislav Kopylov, who helps manage 45 billion rubles ($1.2
billion) at UralSib Asset Management in Moscow, said by phone
today.

Cheapest Valuations

Russian equities have the cheapest valuations among 21
developing countries monitored by Bloomberg, with shares on the
Micex trading at 4.6 times projected 12-month earnings, compared
with a multiple of 10 for the MSCI Emerging Markets Index.

“If you speak about equity markets everything is cheap in
Russia,” said Mansur Mammadov, a money manager at Kazimir
Partners in Moscow, which oversees $300 million in emerging-market equities. “Once we see some kind of calm on Crimea we
are going to see stabilization in the equity markets. Maybe a
bounce, maybe a short-term rally.”